Agriculture sector opportunities in the context of China-Pakistan Economic Corridor

Transcription

1 Final report Agriculture sector opportunities in the context of China-Pakistan Economic Corridor Consortium for Development Policy Research (CDPR) January 2018 When citing this paper, please use the title and the following reference number: S PAK-1

2 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Consortium for Development Policy Research

3 2 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Back of the title page

4 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 3 Table of Contents LIST OF FIGURES... 5 LIST OF TABLES INTRODUCTION, BACKGROUND & CONTEXT INTRODUCTION CONTEXT OF CPEC CHINA S OBJECTIVES IN OBOR SIGNIFICANCE OF AGRICULTURE WITHIN CPEC PUNJAB S OBJECTIVES IN AGRICULTURAL SECTOR PLANNING FOR CPEC MAPPING THE OPPORTUNITY CANVAS FOR AGRICULTURAL SECTOR SIZE OF THE PRIZE - CHINA S IMPORTS PAKISTAN S AGRICULTURE EXPORTS Pakistan s agricultural exports to China CHINA S AGRICULTURAL IMPORTS FROM THE WORLD SECTIONS 3, 4 & 5 - DIGGING DEEPER RICE TRADE POTENTIAL BOTTLENECKS TO EXPORT Tariff analysis Non-tariff barriers and competitiveness RECOMMENDATIONS CITRUS TRADE POTENTIAL BOTTLENECKS TO EXPORT Tariff analysis Non-tariff barriers and competitiveness RECOMMENDATIONS CITRUS AND MANGO PREPARATIONS TRADE POTENTIAL Mango pulp Fruit juices Unfrozen orange juice (HS ) BOTTLENECKS TO EXPORT Tariff analysis Non-tariff barriers and competitiveness RECOMMENDATIONS OTHER HIGH OPPORTUNITY CATEGORIES GUAVAS AND MANGOES SUGAR VEGETABLES RECOMMENDATIONS AND CONCLUSION VALUE CHAIN COMPETITIVENESS TARIFF AND NON-TARIFF BARRIERS TECHNOLOGY PARTNERSHIP PROGRAM... 71

5 4 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 7.4 OPPORTUNITY RADAR INVESTOR FORA PROJECT PIPELINE FOR PRIVATE INVESTMENT CONCLUSION... 72

6 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 5 LIST OF FIGURES Figure 1 Planning for CPEC - an iterative approach Figure 2 Concentration of exporting countries and average distance with their destination countries for agricultural products exported in Figure 3 Pakistan's exports, Figure 4 Pakistan's agriculture exports, Figure 5 Pakistan's supply and international demand for agricultural products, grains, sugar and cotton, Figure 6 Pakistan's supply and international demand for agricultural products, fruit and fruit preparations, Figure 7 Pakistan's exports of agro and agro-processed items to China in Figure 8 China's imports of agro and agro-processed items in Figure 9 Top ten rice exporting countries in Figure 10 Pakistan's rice exports, Figure 11 Pakistan's basmati and non-basmati rice exports to the world, Figure 12 Pakistan's basmati and non-basmati rice exports to China, Figure 13 Pakistan's top export partners for rice in Figure 14 China's import partners for rice in Figure 15 FTA status of Pakistan's rice exports Figure 16 Comparison of tariff rates for top importing country and Pakistan's imports to China Figure 17 Pakistan's citrus exports, Figure 18 Pakistan's top export partners for citrus, Figure 19 China's import partners for citrus, Figure 20 Prospects for market diversification for Pakistan, HS0805 Citrus, fresh or dried Figure 21 World exports of fruit juice (HS2009), Figure 22: Pakistan's mango pulp (HS ) exports to the world, Figure 23: Pakistan's top exporting partners for mango pulp in Figure 24 Pakistan's fruit juice exports in HS2009, Figure 25: Pakistan's top export partners in fruit juices in 2015 (HS2009) Figure 26: China's main import partners for fruit juices in

7 6 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 27: Pakistan's exports of unfrozen orange juice, Figure 28: Pakistan's top export partners for unfrozen orange juice in Figure 29: China's import markets of unfrozen orange juice in Figure 30 Pakistan's exports in guava, mangoes, mangosteens in Figure 31 Pakistan's export partners for guavas, mangoes, mangosteens in Figure 32 China's import partners of guavas, mangoes, mangosteens in Figure 33 Pakistan's cane or beet sugar exports in Figure 34 China's main import partners for sugar, Figure 35 Pakistan's vegetable exports, Figure 36 Pakistan's top 20 export partners for vegetables, Figure 37 China's top import partners for vegetables,

8 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 7 LIST OF TABLES Table 1: Pakistan's export of rice varieties to the world in Table 2 China's imports of rice varieties from the world, Table 3: Indicative trade potential for Pakistan's rice exports to CARs and China in Table 4 Pakistan's top fruit exports, Table 5 Fruit trade complementarities with China, Table 6: Pakistan's citrus exports to the world in Table 7 China's imports of HS0805 in Table 8 Pakistan's indicative trade potential for citrus, Table 9 Pakistan's citrus exports in Category 1 of Pak-China FTA Table 10: China s top import partners in HS Table 11: Pakistan's exports of fruit juices and pulp to the world in Table 12 China's imports of fruit juices from the world, Table 13: Indicative trade potential for fruit juices in Table 14 FTA Status of Pakistan s fruit juice and pulp Table 15 Comparison of tariff rates for Pakistan and top exporting country Table 16 Pakistan's trade potential in guavas, mangoes and mangosteens in Table 17 Pakistan s vegetable exports, Table 18 Alignment of Pakistan's vegetable exports with China's vegetable imports... 69

9 8 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 1. Introduction, Background & Context 1.1 Introduction Agriculture Department, Government of Punjab requested the IGC Pakistan to help the Department inform its decision-making regarding agriculture sector opportunities in the context of China-Pakistan Economic Corridor (CPEC). Consequently IGC deployed technical support, to help Government of Punjab in looking at agriculture trade opportunities vis-à-vis CPEC. The support was provided in close coordination with the department. The objectives of this work are to: Provide a framework to determine the Department of Agriculture s priorities vis-à-vis CPEC Develop a template to analyze specific opportunities in priority sectors Undertake illustrative case studies on three priority sectors and provide recommendations on leveraging CPEC for these priority sectors This report presents the final output of the project, describing the agriculture opportunity canvas that the Government of Punjab must focus on to capitalize on CPEC. It must be noted that this work presents a framework to identify Agriculture Department s priorities vis-à-vis CPEC and digs deeper on a few product categories to illustrate this framework. The research has also identified three other opportunity areas that should be explored further. It is expected that the government will make full use of this framework by continuously running diagnostics and further exploring the opportunity frontier. It is important to note that presently, the Government of Punjab is in the process of formulating the provincial agriculture policy. It is expected that this work will also inform the agriculture policy. 1.2 Context of CPEC One Belt One Road (OBOR) initiative is an integral part of China s Going Global strategy. Launched by China s president, Xi Jinping in 2013, OBOR is arguably the largest initiative of this kind, spanning over 65 countries, 4.4 billion people and almost 40% of global GDP. 1 The project focuses on building a global infrastructure network by improving and creating trading routes, links and business opportunities with China via two main channels: 21st Century Maritime Silk Road (MSR) and the Silk Road Economic Belt (SREB). The Maritime Silk Route plans to connect regional waterways by construction of ports and other coastal infrastructure in countries located in Southeast Asia and East Africa, 1

10 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 9 enhancing their connectivity with China. The Silk Road Economic Belt, on the other hand, is a network of land and rail routes that extend along the ancient silk route from China through Central Asia and Middle East, all the way to Europe, including six economic corridors: New Eurasian Land Bridge (NLEB); China- Central and West Asia Economic Corridor (CCWAEC); China-Indo-China Peninsula Economic Corridor (CICPEC); China-Pakistan Economic Corridor (CPEC); and Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC). 1.3 China s objectives in OBOR Through OBOR, China aims to look for new growth drivers to accelerate its slowing economic growth in the last few years. In 2007, China s GDP growth rate was 14.2%, however the growth rates slowed down in the following years, plummeting to 6.9 in 2015, a record low of the last 25 years. OBOR presents an opportunity for China to promote investments and gain access to new opportunities that can lead to sustainable economic growth, so that China and Asia can continue to fuel the global economic engine. With increased connectivity as a result of OBOR, China will be able to stimulate trade relations with ASEAN, Central Asian and European countries, which will spur a demand for China s goods and services. It will also enable China to export its surplus productive capacity, especially in areas such as construction, engineering, technology, steel and cement. Overcapacity in these sectors has diminished returns on domestic investment and therefore China has turned to the international market to bolster commercial relations and capitalize on higher investment returns. OBOR comprises a host of current, planned and future infrastructure projects, for which China has directed significant capital towards construction of ports, roads, railways, oil and gas pipelines along with supporting IT and communication infrastructure. Through OBOR, China also aims to develop its landlocked and underdeveloped western and southern regions by providing better connectivity to international markets. Within this context, China-Pakistan Economic Corridor, stretching from Xinjiang to Gawadar port in Pakistan, will play a central role in development and modernization of Xinjiang. 1.4 Significance of Agriculture within CPEC China Development Bank (CDB) initially developed a long-term plan (LTP) for CPEC on behalf of Chinese government, laying out proposed details of the initiative for various areas of cooperation and investment, including agriculture. 2 The main areas of collaboration in agricultural development and poverty alleviation are aimed at strengthening and upgrading of agricultural infrastructure adjoining the route of CPEC. Construction of water resources and water-saving modern agricultural demonstration zones will be promoted and medium- and low-yielding land will be remediated to achieve efficient use of 2 The detailed LTP was replaced by a much shorter summary version, which formed the basis of formalizing CPEC cooperation. So far there is no officially released formalized LTP document available.

11 10 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT resources. As a part of CPEC, technical exchange and cooperation in fields such as crop seed reproduction, livestock and poultry breeding, breeding and production technology, agricultural products processing, animal & plant epidemic prevention & control, mechanization demonstration and ICT-enabled agriculture will be strengthened. Post-harvest handling, storage and transportation of agricultural products will be improved, and innovation of advanced marketing and sales models has also been proposed. Cooperation between Pakistan and China will also work together to improve flood management, develop rangeland & deserts and strengthen remote sensing technologies. In order to improve agricultural practices, production of agriculture inputs particularly pesticides, fertilizer, machinery will be enhanced and support services including agriculture education and research will be provided to the farmers to ease adoption of better quality inputs. Collaboration in horticulture, fisheries and livestock medicines and vaccines is also one of the key areas covered in the LTP. In particular, within agriculture, China aims to develop different stages of the value-chain, as proposed in the detailed LTP. A set of steps will be taken in order to improve pre-harvest agricultural practices. To develop breeding and plantation, agricultural practices will be modernized along the corridor by guiding farmers regarding agricultural mechanization and optimum scale production and encouraging use of improved varieties to improve productivity. An agricultural mechanization demonstration will be provided to the farmers and a leasing center will be constructed in Punjab to promote drip irrigation under plastic film and other water-saving agricultural techniques. Protected cultivation for the development of facility agriculture will also be encouraged. It has been planned to establish a plant and animal disease prevention and control system in Faisalabad and Lahore to reinforce R&D in view of the current cotton leaf roll virus and other plant viral diseases. Post-harvest agricultural practices, including storage, transportation and agricultural processing will also be enhanced. Warehousing and logistics facilities in Islamabad and Lahore will be strengthened to form a warehousing and logistics network system connecting cities and covering the area along the CPEC. To develop agricultural processing capacity, modern agricultural product processing equipment and facilities will be provided to the processing units. It is also proposed to develop agricultural industry cluster around Islamabad and Lahore to create a processing base meeting international standards. These measures will help overcome some of the existing bottlenecks and upgrade postharvest handling and processing of agriculture. China and Pakistan have potential for symbiotic trade relations, whereby China can take advantage of the low-cost production resources available in Pakistan, and Pakistan can benefit from the technology and financing that China has to offer. Pakistan has an abundance of labor force, available at cheap rates, which can be employed by the Chinese companies to produce cost competitive products. Moreover, there is a large demand for Chinese products in Pakistan, so an increased ease of trade will lead to a spur in Chinese exports. Pakistan, on the

12 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 11 other hand, can modernize and develop its production processes by importing technology from China. Chinese investment can also provide the much needed financing for different projects in Pakistan. It will also allow domestic producers to learn by working closely with experienced Chinese investors. Through increased connectivity, both countries can benefit by playing to their comparative advantages. Xinjiang Production and Construction Corps (XPCC), also commonly known as Bingtuan, is the autonomous administrative authority in Xinjiang Uyghur Autonomous Region of the China having expertise in modern agriculture and it is expected that Pakistan can greatly benefit from this expertise through technical cooperation. 1.5 Punjab s objectives in agricultural sector According to the Punjab Agriculture Sector Plan 2015, the main objectives of Punjab government in the agricultural sector for the next 5 years include enhancing productivity, encouraging farmer-centric service delivery and private sector led growth. Government is targeting an increase in the growth rate of agriculture from the current level of 2.1% to 7%. This will be achieved by meeting the goal of 40% increase in crop productivity of wheat and sugarcane, 50% for cotton, 30% for rice and 20% for maize. 3 Service delivery to farmers will also be strengthened to achieve 100% farmer access to evidence-based and diagnostic driven extension services. Agricultural Department will be transformed into a farmer centric institution, with use of information and communications technology to communicate with the farmers. In order to modernize and develop the sector, private investment worth PKR 150 billion will be mobilized. Government has identified four major channels to meet these objectives. Firstly, farmer s access to requisite inputs and knowledge should be increased. Information regarding modern farming practices, technology and machinery should be disseminated to farmers. Access to required inputs, such as seeds, fertilizer, pesticides and modern machinery should be ensured at a wide scale. Information and access will ensure easy adoption of productive farming techniques. Secondly, farmers should have efficient access to market in downward and upward linkages. Farmer should have access not only to inputs and value addition equipment, but also to market information so he is able to buy inputs at a lower cost. Farmer should also be able to sell produce in the market with adequate profit margins. The third channel is promotion of new investment and access to finance. This will ensure that farmers and other players of the value chain have access to credit and are able to afford high yielding inputs. Moreover, with higher investment, additional area will be brought under cultivation each year. The fourth enabler focuses on improving quality standards, which will bring Pakistan's products closer to the international benchmarks and quality standards, making it easier to export to other countries. 3

13 12 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 1.6 Planning for CPEC Within the agriculture sector, Punjab s approach to the CPEC investments should be informed by understanding the opportunities that these investments present through a mapping of the opportunity canvas. This can then lead to identification of key complementarities between Pakistan s supply and Chinese demand, and vice versa. This report was commissioned by the Agriculture Department Punjab for this purpose, in collaboration with IGC and CDPR. The research includes analyzing trade prospects with China in both export of agricultural products to China and beyond. A comprehensive examination of the export basket of Pakistan and the import basket of China was undertaken to identify promising agriculture and agro-processed products that offer opportunities to increase and diversify Pakistan s exports to China. Once the opportunity canvas was mapped out, a more comprehensive analysis of the specific products/technologies with greatest potential was undertaken, including analysis to understand international and domestic market dynamics, bottlenecks and barriers and the issues highlighted pertained to domestic value chain and competitiveness or tariff and non-tariff barriers that hamper trade. It was imperative to involve the private sector in the process to develop a better understanding of the practical issues on ground. It is expected that in order to work through the bottlenecks, evidence-based targeted interventions should be designed and implemented by Agriculture Department, based on this research. This will result in expanding the canvas of Pakistan and lead to increased opportunities and exports to China and beyond. The same approach should be taken towards other products. Figure 1 Planning for CPEC - an iterative approach Expanding the Canvas Mapping Opportunity Canvas Designing Targeted Interventions Digging Deeper Looping in Private Sector

14 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Mapping the Opportunity Canvas for Agricultural Sector 2.1 Size of the prize - China s imports China has a population of 1.3 billion people. Remarkable economic growth in the past three decades has resulted in sustained growth in consumer incomes, consumption and urbanization. This has increased the demand for food, with $1 trillion worth of food consumed every year. This is projected to increase by another $500 billion in the next 10 years. Rising incomes have also led to changes in food consumption patterns, with a demand for higher diversity, quality and imported food. Since 2009, China s food imports have been increasing at an average rate of 15% per annum 4 and in 2012, China surpassed USA to become world s largest importer of agricultural products. Sales of packaged food have also quadrupled in the last 15 years in China. Therefore, China offers a huge market of imported food products. China also imports a wide variety of products in agriculture and food. The pie chart below depicts the composition of imported agriculture and food products by China. Source: China s Growing Demand for Agricultural Imports bygale, F.; Hansen, J; Jewison, M; 2015; United States Department of Agriculture China s agriculture imports mostly include oils, grains, sugar, cotton, fruits, vegetables, meat and hides. Grain and feed imports consist of corn, wheat, sorghum, barley, rice and animal feed. The largest chunk of imports is formed by soybeans and oilseeds, i.e. 39.6%, followed by cotton, wool and fibers accounting for 13.4% of agricultural and food imports. Fats and oils form 11.9% of China s 4 WTO statistics

15 14 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT imports, and meat and dairy products constitute 9.6% of imports. This diverse range of products is also being imported from several countries. Leading exporters of agricultural products to China include USA, Brazil and Australia, followed by Canada, New Zealand and Argentina. During , USA alone accounted of almost 24% of China s imports in agriculture, occupying the first place in imports of soybeans and oilseeds, cotton, meat, cereal grains and hides among others. Brazil is the second largest import partner of China, constituting almost 20% of China s agricultural imports, followed by Australia. These countries have increased exports to China manifold over the years, capitalizing on China s increasing demand for quantity and variety of agricultural products. The following graph presents the trend for Chinese imports by these supplying markets from 2000 to Source: China s Growing Demand for Agricultural Imports by Gale, F.; Hansen, J; Jewison, M; 2015; United States Department of Agriculture The graph indicates that there is a rising trend in the exports of all the countries supplying agricultural products to China from 2000 to Moreover, the rate of increase has also gone up over the years, especially after 2009, after which, as mentioned earlier, the imports of China have increased at a rate of 14%. Among the countries supplying agricultural exports to China, USA has experienced the largest increase. From almost $3 billion in 2000, USA s exports have increased to $25 billion in USA is followed by Brazil, for which the exports have increased by over 10 times from 2000 to Similarly, Australia s agricultural exports to China, which surpassed Argentina to be the third highest largest supplying country for China s agricultural exports in 2010, have gone up from around $2 billion to $7 billion in a span of 13 years. There is a similar opportunity for Pakistan to increase its share in the agricultural imports of China.

16 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 15 Distances play an important role in trade because smaller distances mean lower transportation cost. However, in case of food products, proximity is all the more important since the items are perishable. Risk of spoilage and contamination in transit increases in longer distances, due to which additional cost has to be incurred for preservation and packaging. Extra pesticides also have to be sprayed to increase shelf-life of food and prevent damage in the transport. All these factors made it unfavorable to trade perishable food items over long distances. The diagram below depicts the concentration of exported products and the average distance between the countries trading in food items.

17 16 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 2 Concentration of exporting countries and average distance with their destination countries for agricultural products exported in 2015 Source: ITC Trade maps, 2017

18 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 17 The size of the bubble in the graph above indicates the traded value of the item the larger the bubble, the higher the traded value. The vertical axis represents the distance between the trading countries and the horizontal axis show the concentration of exported product, calculated by Herfindahl index, in terms of the number and share of exporting countries. As it can be seen, most of the bubbles are clustered towards the bottom left corner of the graph. This indicates that there is a variety of countries that are exporting these products globally, hence the concentration is low. It also shows that for most of the exported food items, the average distance between the trading countries is less than 4500 km. Therefore, it can be inferred that although export of food items is taking place in several countries, trade is higher between neighboring and regional countries, compared with countries that are far away. The only food item with an average distance higher than 6000 km is dried vegetables, which have a longer shelf-life. 2.2 Pakistan s agriculture exports Current exports of Pakistan comprise of a variety of products. Figure 3 shows the export portfolio of Pakistan and each commodity group s share in total exports of Pakistan. The most prominent category in Pakistan s exports is textile and clothing, which make up more than half of Pakistan s exports. The second largest export category is vegetables, accounting for 14% of Pakistan s exports. Food products are the fourth important item in Pakistan s exports, constituting almost 4% of total exports. Therefore, Pakistan s bulk of export basket is reliant on agriculture. Even the food products alone form two of the major export categories of Pakistan, accounting for a cumulative of 18% of Pakistan s exports. The structure of Pakistan s exports to the world within agricultural and agroprocessed excluding cotton and livestock-related products (HS codes up to HS24) is presented in Figure 4. It can be seen that the exports of Pakistan in agriculture and agro-based based products are somewhat diversified. The most dominant exports of Pakistan are cereals (HS code 10) earning $1,942 million, which is almost half of the over-all agro and agro-processed export earnings. The second highest category is edible fruit, nuts and fruit peels, with a value of $415 million, accounting for 10% of the total earnings. Both of the top two export categories are raw agricultural products; most of the value-added processed agricultural commodities constitute a smaller share of the total exports. Cumulative exports of Pakistan in agricultural and agro-processed items amount to $4.06 billion. Figure 5 presents the performance of Pakistan s exports of grains, sugar and cotton by comparing the annual growth of Pakistan s share in world exports (horizontal axis) to the growth in international demand (vertical axis) of the same product, over the period 2011 and Products to the right of the vertical line, such as sugar confectionary and sugar, have grown faster than world exports; hence they have an increased share in the world s market. For sugar confectionary, world imports have also been growing, but Pakistan has

19 18 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT been able to outperform world s imports by increasing its share in the world market. For sugar, Pakistan s share in the world market has been growing; however, the growth of world imports has been declining. Products to the left of the vertical line, such as wheat and muslin, maize or corn and raw cotton have grown at a slower pace than world s exports, thereby decreasing Pakistan s share in the world s market. All of these products lie in the bottom left quadrant, which indicates that world imports have declined and Pakistan s market share has also gone down. For rice, the growth in world imports has been stagnant and Pakistan s share in world exports between 2011 and 2015 has also stayed constant over the years. Similarly, the performance of fresh and prepared fruits is illustrated in Figure 6. From the size of the bubbles, it can be seen that among all the products in the chart, citrus fruit has the highest export value in 2015, followed by fresh or dried dates. Products in the top right quadrant, which are dried peaches and pears etc., jams, preserved vegetable or fruit in vinegar and citrus fruit have outperformed the market. Pakistan has an increasing market share of these products in an internationally growing market. Guavas, mangoes and mangosteens and dates are experiencing erosion in the share in international market although the international imports have been growing at an above average rate. For fruit juices, the growth of the international market has been negative, which implies that the international imports have been declining and Pakistan s market share in these products has also been falling.

20 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 19 Figure 3 Pakistan's exports, 2015 Source: WITS World Bank

21 20 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 4 Pakistan's agriculture exports, 2015 Export Value (Million $) Cereals Edible fruit and nuts; peel of citrus fruit or melons Sugars and sugar confectionery Products of the milling industry; malt; starches; inulin; wheat gluten Beverages, spirits and vinegar Edible vegetables and certain roots and tubers Oil seeds and oleaginous fruits; miscellaneous grains,seeds and Coffee, tea, matã and spices Animal or vegetable fats and oils and their cleavage products; prepared Preparations of cereals, flour, starch or milk; pastrycooks' products Preparations of vegetables, fruit, nuts or other parts of plants Lac; gums, resins and other vegetable saps and extracts Residues and waste from the food industries; prepared animal fodder Miscellaneous edible preparations Tobacco and manufactured tobacco substitutes Vegetable plaiting materials; vegetable products not elsewhere Live trees and other plants; bulbs, roots and the like; cut flowers and Cocoa and cocoa preparations Source: UN Comtrade,

22 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 21 Figure 5 Pakistan's supply and international demand for agricultural products, grains, sugar and cotton, 2015 Annual growth of world imports between (%, p.a.) Losers in growing sectors 0 Rice Wheat and meslin Source: ITC Trade maps, 2017 Maize or corn Sugar confectionery Winners in growing sectors Raw cotton Winners in declining sectors Losers in declining sectors -20 Annual increase in Pakistan's share of world exports between , % Sugar

23 22 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 6 Pakistan's supply and international demand for agricultural products, fruit and fruit preparations, 2015 Losers in growing sectors 14 Winners in growing sectors Annual growth of world imports between (%, p.a.) Guavas, mangoes and mangosteens Source: ITC Trade maps, Fresh or dried dates Citrus fruit Jams, jellies, marmalades Veg/fruit in vinegar Dried peaches, pears, papaws papayas, tamarinds etc Fruit juices -4 Losers in declining sectors Winners in declining sectors Annual increase -6 in Pakistan's share of world exports between , %

24 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Pakistan s agricultural exports to China In 2015, Pakistan exported agriculture and agro-processed products worth $303 million to China. As seen in Figure 7, Pakistan s exports to China are mainly concentrated in a few products cereals, beverages, edible fruit and nut, lac gums and residue of food industry. Almost half of the Pakistan s total agro and agro-based exports to China comprise cereals, which include rice, wheat, muslin, maize or corn, barley, rye and oats. The second largest category is beverages, spirits and vinegar, which constitute almost $90 million of export earnings. This is followed by edible fruit and nuts, which constitute around one-tenth of Pakistan s agro and agro-processed exports to China. Raw agricultural products constitute 68% of total exports to China, while value-added processed items account for 32% of agro and agro-processed exports to China. 2.3 China s agricultural imports from the world As shown in Figure 8, China s imports of agro and agro-processed items from the world amounted to a cumulative $76 billion in A variety of agricultural and agri-processed products are imported by China, ranging from oil seeds to preparations of fruit, vegetable and flour. As can be seen in the graph below, the most dominant category in imports is oil seeds, which constitute $40 billion in import expenditure, forming 53% of total imports of China. Cereals follow this, accounting for 12% of total imports. The third highest category is formed by edible fruit, nuts and peels of fruit, which account for 8% of China s imports from the world. Raw agricultural products form 23% of China s imports, compared to 77% constituted by value-added agro-processed items. Pakistan exports to China in two of its top three imported agriculture and agro-processed product categories. However, the percentage of Pakistan s exports in total imports of China is nominal. Pakistan s exports in cereal, for instance, form a meager 1.8% of total Chinese exports in cereal. Similarly, edible fruit and nuts form 0.4% of the edible fruit import of China. The highest share of Pakistan s exports in China s imports is represented by lac, gums, resins, etc., which is 4.5% of Chinese imports, however these constitute a small portion of China s imports. Similar to world trends, Pakistan s exports to the world are sensitive to the distance between the trading partners. As seen, the bubbles with higher distances are mostly textile articles. For all of the food items, the bubbles are concentrated in the bottom left corner, indicating the greater sensitivity of food items to distance. The concentration of destination countries is low, which implies that Pakistan is exporting to a variety of countries and the average distance of these countries from Pakistan for food and agricultural products is below 6000 km. The lowest average distance between Pakistan and destination country is about 1900 km, for edible vegetables, followed by meat, fruit and nuts and sugar. Regional trade in food items is higher than exports to far away countries. Despite this, exports to China, with whom Pakistan shares a border, are low,

25 24 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT which represents an underutilized opportunity as Pakistan has an edge over countries like the USA and Australia in terms of transport costs and travel times.

26 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 25 Figure 7 Pakistan's exports of agro and agro-processed items to China in 2015 Export value (Million US$) Cereals Beverages, spirits and vinegar Edible fruit and nuts; peel of citrus fruit or melons Lac; gums, resins and other vegetable saps and extracts Residues and waste from the food industries; prepared animal fodder Oil seeds and oleaginous fruits; miscellaneous grains,seeds and fruit; industrial or medicinal Edible vegetables and certain roots and tubers Vegetable plaiting materials; vegetable products not elsewhere specified or included Sugars and sugar confectionery Preparations of vegetables, fruit, nuts or other parts of plants Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Coffee, tea, matã and spices Preparations of cereals, flour, starch or milk; pastrycooks' products Miscellaneous edible preparations Source: UN Comtrade 2017

27 26 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 8 China's imports of agro and agro-processed items in Import value (billion US$) Oil seeds and oleaginous fruits; miscellaneous grains,seeds and fruit; industrial or medicinal plants; straw Cereals Edible fruit and nuts; peel of citrus fruit or melons Residues and waste from the food industries; prepared animal fodder Beverages, spirits and vinegar Preparations of cereals, flour, starch or milk; pastrycooks' products Edible vegetables and certain roots and tubers Sugars and sugar confectionery Miscellaneous edible preparations Preparations of vegetables, fruit, nuts or other parts of plants Coffee, tea, matã and spices Lac; gums, resins and other vegetable saps and extracts Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Vegetable plaiting materials; vegetable products not elsewhere specified or included Source: UN Comtrade

28 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 27

29 28 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Sections 3, 4 & 5 - Digging Deeper From the section above, it can be seen that China represents a large opportunity for Pakistani agricultural products, which is currently severely underutilized. This section focuses on three specific agricultural products with a more detailed analysis: rice, citrus and basic fruit preparations namely juices, pulp and concentrate.

30 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Rice Pakistan s rice exports represented 5.3% of global rice exports in 2016, placing Pakistan in the top five exporters of rice in the world. Figure 9 Top ten rice exporting countries in Rice exports (US$ billions) India Thailand United States of America Viet Nam Pakistan Italy Uruguay China Cambodia Brazil Source: ITC Trade maps Pakistan s rice exports to the world have shown an increasing trend over the years. From 2003, the exports have increased from $626 million to $1.9 billion in 2015, a three-fold increase. Exports to the world peaked in 2008, with a value of $2.4 billion. The average annual growth rate of Pakistan s exports in the years 2012 to 2016 is -4%. Figure 10 Pakistan's rice exports, Billion US$ Pakistan's exports to the world Pakistan's exports to China Source: UN Comtrade

31 30 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Four varieties are grown in Pakistan: Basmati, Long Grain, IRRI 6 and Extra Long Grain. These can be categorized as basmati, which is the aromatic variety, and non-basmati rice. Basmati rice is mainly produced in India and Pakistan and fetches a higher price in the international market than non-basmati rice due to its aroma. It is therefore a premium product. In 2015, Pakistan s exports of nonbasmati rice to the world were 4.5 times the export of basmati rice in quantity ( metric tons for non-basmati compared to metric tons for basmati), however the export earnings for non-basmati rice were less than 2 times that of basmati rice (US$1.2 billion for non-basmati and US$0.86 billion for basmati) Trade potential Rice exports to China remained stagnant over the years till 2011, when the Chinese approved rice exports from Pakistan, certifying that they met SPS requirements. Following this, there was a sharp increase in 2012, with exports peaking at $254 million. Since then exports have tapered off and currently stand at US$160 million. In 2003, the share of Pakistan s rice exports to China was 0.01% of Pakistan s total rice exports to the world, which has increased to 8.7% in However, Pakistan s exports of rice to China have declined with an average annual rate of 2% in the years 2012 to To further analyze the trend in rice exports, Figure 11 shows Pakistan s exports of rice to the world, disaggregated into basmati (HS ) and non-basmati rice (HS ). Pakistan s exports of both basmati and non-basmati rice have a fluctuating trend over the years, though non-basmati rice has seen an overall increase. Exports of non-basmati rice have outweighed the exports of basmati rice, except in the years In the most recent years, exports of both basmati and non-basmati rice have been declining. Figure 11 Pakistan's basmati and non-basmati rice exports to the world, Exports (US$ million) basmati rice non-basmati rice Source: ITC trade maps 5

32 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 31 Figure 12 shows Pakistan s basmati and non-basmati rice exports to China. Pakistan s basmati exports to China have consistently increased over the years till Non-basmati exports, on the other hand, remained constant until 2010, after which they peaked in 2012, falling to US$ 100 million in the very next year. Pakistan s exports to China in the years 2012 to 2016 have increased at a rate of 1% per annum, which is attributable to the increase in basmati rice exports to China. Figure 12 Pakistan's basmati and non-basmati rice exports to China, Exports (US$ millions) Basmati rice non-basmati rice Source: ITC trade maps The main destinations for Pakistan s rice exports are shown in the bar graph below. Pakistan is well diversified in terms of export markets of rice. The top export destination for Pakistan s rice is Kenya, where rice worth $0.21 billion was exported in Exports to Kenya constitute 11% of Pakistan s exports to the world. China is the second largest export market for Pakistan s rice, importing rice $0.17 million in value, with a share of 9% in Pakistan s total rice exports. China is followed by Afghanistan, UAE, Oman and Saudi Arabia respectively. The rest of the countries individually have an export share lower than 4% of Pakistan s rice exports.

33 32 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 13 Pakistan's top export partners for rice in Value ( US$ Millions) China s import partners for rice are shown in Figure 14. China s imports for rice amount to US$ 1.4 billion. China s rice import market is concentrated, with only four countries major import partners. The top import partner for rice in China is Vietnam, accounting for 50% of China s rice imports. Vietnam is followed by Thailand, which constitutes 32% of China s import. Pakistan comes in third with rice imports accounting for 11% of China s total rice imports in Figure 14 China's import partners for rice in 2015 Value (US$ millions) The following table shows the varieties of rice exported by Pakistan. Other varieties of rice, i.e. non-basmati, account for 46% of Pakistan s rice exports and form the largest chunk in rice exports to the world. The second largest export category is basmati rice, constituting 27% of Pakistan s exports, followed by broken rice with 26% of the share. Husked rice and rice in the husk are also part of the export mix, however, they form a small portion of total rice exports.

34 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 33 Table 1: Pakistan's export of rice varieties to the world in 2015 Product code Product label Pakistan's exports to world in 2015 in US$ Percentage of total HS1006 exports (PK to World) Rice other varieties 895,990, Rice basmati 520,155, Broken rice 490,358, Husked (brown) rice 20,412, Rice in the husk (paddy or rough) 285, Source: ITC trade maps To compare Pakistan s exports to China s imports from the world, the table below shows the varieties of rice imported by China. There is an overlap in the top three products of rice imported by China and exported by Pakistan, which consists of basmati, non-basmati and broken rice. Pakistan is currently exporting to China all three of these varieties. However, the share of Pakistan s exports to China as a percentage of total Chinese imports in these categories falls around 13% for non-basmati varieties, 18% for basmati rice and 0.6% for broken rice. Table 2 China's imports of rice varieties from the world, 2015 Code Product label China s imports from the world in 2015 % of total imports from the world in HS Semi-milled or wholly milled long grain 878,678, Other semi-milled or wholly milled rice 289,623, Broken long grain 180,735, Other broken rice 98,150, Husked (brown) long grain 22,028, Long grain, in husk (paddy or rough), excl. 2,213, seed Other rice, in husk (paddy or rough), excl. 819, seed Other husked rice 163, Source: ITC trade maps The analysis above implies that there is a potential for increased trade between Pakistan and China in rice. Pakistan s total exports of rice are worth $1.9 billion, which are greater than China s imports of rice, i.e. $1.4 billion. However, Pakistan sends only 8% of its rice exports to China, which account for 11% of China s rice imports. There is an opportunity for Pakistan to direct a greater proportion of rice to China, and capture a larger share of Chinese rice market. The indicative trade potential of Pakistan for Central Asian Republics (CARs), which comprise of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and

35 34 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Uzbekistan, and China is presented in the table below. 6 As seen Pakistan currently exports rice worth US$ million to CARs, which is much lower than the imports of CARs from the world. The indicative trade potential shows that there is an opportunity for Pakistan to increase its rice exports to CARs by almost US$ 85 million. Similarly, Pakistan s rice exports to China have a potential to increase up to US$ 1300 million. These potentials are currently unexploited by Pakistan. Table 3: Indicative trade potential for Pakistan's rice exports to CARs and China in 2015 US Million $ CARs China Pakistan's exports Imports from the world Indicative trade potential Source: ITC trade maps Pakistan s current rice exports to China form a nominal share of China s rice imports. There is a potential for Pakistan to increase its exports to China by a significant amount, however the potential is underutilized. The section below delves into the bottlenecks in exporting to China. 3.2 Bottlenecks to export This section explores the reasons that the Chinese market is currently underutilized by Pakistan, by exploring tariff and non-tariff barriers and other impediments such as competitiveness and market demand Tariff analysis All categories of rice (HS1006) are either a part of category 5 in China s offer list, which does not grant any tariff concession, or are not a part of Pak-China FTA. Therefore, no preferential tariff is applicable to Pakistan s exports of rice to China under the FTA. Figure 15 FTA status of Pakistan's rice exports Product code Product label Pakistan's exports to China in 2015 in US$ Pakistan's exports to world in 2015 in US$ Percentage of total HS1006 exports (PK to World) Categories Rice other varieties 113,268, ,990, Cat Rice basmati 1,142, ,155, Cat Broken rice 52,639, ,358, Not in FTA Husked (brown) rice 0 20,412, Not in FTA 6 Trade potential = min {country s exports; partner country s imports} actual bilateral trade The trade potential formula described uses export and import data as proxies for a country s supply and demand potentials, respectively. For this reason, this formula does not consider the supply side constraints that a country may face in producing and exporting a specific product. It is for this reason that trade potential serves only as a starting point to inform further research. 7 Indicative trade potential for rice has been calculated as the sum of trade potentials for HS , HS , HS and HS

36 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Rice in the husk (paddy or rough) 0 285, Not in FTA Source: ITC trade maps, Tariffs may therefore be one of the factors restricting exports to China. China maintains Tariff Rate Quota (TRQ) on import of rice as Most Favored Nation (MFN) duty. According to this a low-tariff of 1% is levied on import of a quota of 5.3 million tons of rice (cumulative imports from all countries), while import of rice beyond this quota is subject to a tariff of 65%. 8 This two-tiered tariff is applicable to all countries, except ASEAN and those that have not been granted MFN status by China. As shown in the table below, the same TRQ is levied on import of rice from Pakistan as well. However, ASEAN countries, which are the top exporters of rice to China, enjoy preferential tariff rates as a part of ASEAN- China FTA. They are granted tariff rates of 20% in non-basmati and broken rice and 50% of tariff in basmati rice imported in China. Figure 16 Comparison of tariff rates for top importing country and Pakistan's imports to China 9 Product code Product label Top importing country ASEAN tariff in 2015 Pakistan tariff in Rice other varieties Vietnam 20% OQTR: 65.00% IQTR : 1.00% Rice basmati Thailand 50% OQTR: 65.00% IQTR : 1.00% Rice: Broken rice Vietnam 20% OQTR: 65.00% IQTR : 1.00% Source: ITC trade maps 10 The analysis above shows that tariff rates negotiated under the Pakistan-China FTA are higher than those available to the ASEAN countries under the China- ASEAN FTA, which puts Pakistan s rice exports at a disadvantage Non-tariff barriers and competitiveness In order to explore other non-tariff bottlenecks to export, a focus group session was conducted which was attended by farmers, aartis (middlemen), the Director of Rice Research Board and rice exporters. The discussion below draws on the focus group discussion. The success that Pakistan has had in Chinese markets so far (relative to India, which is Pakistan s main competitor for rice) is ascribed to two factors. Firstly, there is a preference for hybrid rice in China, not basmati, and Pakistan s IRRI-6 is being exported to meet that demand. Secondly, exports to China were allowed after the Chinese approved the phyto-sanitary standards of the rice in This , which is reported by Pakistan as exported to China, is not there in the tariff analysis on ITC. 10http://

37 36 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT is the reason given for the peak in rice exports in Last year, in November 2016, 14 Indian companies were also approved for exporting rice to China, being previously not allowed, and therefore Pakistan is likely to face increased competition from India now. Pakistan started losing market share to India in recent years. Rice growers maintain that Pakistani rice is more expensive as Indian rice growers are subsidized. For example, subsidized fertilizer and free water bring down Indian prices. In addition, unlike Pakistan, there is a drainage plan for each village in India, which ensures that the crop is not harmed by excess and untimely water. Furthermore, Pakistani rice growers claim that India is also actively carrying out research in rice, and has developed high yielding varieties of rice, which increase their yield/acre and reduces incidence of pest attacks. India has developed five new rice varieties in the last 10 years; on the other hand, in Pakistan the last rice variety, i.e. Super Basmati, was introduced in New varieties that have been experimented with after Super Basmati were non-aromatic, and did not receive much patronage. India has also invested in effective marketing and branding of its rice and India s rice exports are properly packaged and labeled. In comparison, most of the rice exported from Pakistan is in bulk, without any packaging and branding. All these factors contribute to making India s rice more price-competitive than Pakistan s. Aside from competitiveness issues, Pakistan is losing market share due to being unable to target the desired customers. Basmati rice is premium quality rice, known for its flavor and aroma, which targets high-end consumers and fetches a higher price in the international market than other rice varieties. In the last few years, India has been exporting non-aromatic rice labeled as basmati, at lower prices than Pakistan. This has interrupted market segmentation, because of which Pakistan is unable to target high-end consumers for its elite rice variety and is facing a decline in market share. In 2010, Pakistan exported 1.1 million tons of basmati rice to the world, which has fallen to 0.7million tons in In comparison, India s basmati export to the world has doubled from 2.3 million metric tons in 2010 to 4 million metric tons in Therefore, Pakistani rice growers feel that Pakistan is losing market share due to incorrect labeling and marketing of Indian non-aromatic rice as basmati. Another impeding factor is the lack of coordination among the key players of rice value chain. Although Pakistan Rice Board brings all the stakeholders together, this body is seen merely as advisory, with little power to resolve issues. There is a dearth of funds and resources available to the board, because of which it is not able to function properly. Another platform that can act as a coordinating platform is Rice Exporters Association of Pakistan (REAP); however, the association does not have fair representation of each stage of the value chain. There is no representation of producers or other stockholders, due to which there is a conflict of interest and most propositions made by the association are 11

38 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 37 bent towards favoring the exporters. Additionally, the association board consists of a majority of non-basmati rice exporters from Sindh, who have a greater say in the decisions of the association. REAP is also supposed to act as a bridge between public and private sector, however rice growers feel that even in cases where it has communicated the issues to Ministry of Commerce, no steps have been taken towards their resolution by the ministry. Therefore, there is an absence of an effective formal coordinating body between different stakeholders of the rice supply chain and between the government and rice sector. Yet another impediment is that conventional farming practices lead to low crop yields and high wastage. On a large scale, rice seeds are being planted by hand and mechanization of farms has been very limited. The fields are set on fire in order to remove the straw that remains after harvesting, which destroys some of the essential nutrients and useful bacteria of the soil as well. Use of modern technology in farming techniques can increase efficiency in production. However, 98% of farms in Punjab are smaller than 25 acres due to which farmers do not find it profitable to invest in expensive agricultural machinery. Most of the implements used in rice cultivation, such as transplanters, are not produced domestically but have to be imported from other countries, which further increases the cost of mechanization. Agricultural Machinery Research Institute was formed to facilitate farmers in the introduction of modern technology; however, this institute is dysfunctional and has not been able to work towards its purpose. In summary, Pakistan faces high tariffs relative to other countries that China imports rice from. However, there do not appear to be China specific non-tariff barriers to export. The main issues that impede competitiveness are domestic, such as low research and development in seed varieties, outdated plantation and harvesting techniques, and poor coordination between rice stakeholders and government. 3.3 Recommendations In order to increase yield, there is a need to modernize Pakistan s rice production and alleviate domestic constraints to competitiveness. These include importing and providing time limited subsidies to encourage the use of modern machinery such as transplanters, research and development support, providing funding for farmers to invest in improving their productivity. Secondly, Pakistani rice needs better marketing and branding efforts in order to expand market share in China, and in other international markets where Pakistan is losing market share. This would also allow consumers to differentiate between authentic and sub-quality basmati rice. Thirdly, it is important to negotiate a better tariff under the FTA. Pakistan currently has no concessions under the FTA, and does not compare favorably with China s other trade partners.

39 38 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Finally, it is essential to ensure that all the players of the value chain from research and development to exporters are integrated and well-informed. This can be done by creating an Agriculture Produce and Export Authority, which has fair representation of each player of the value chain, including stakeholders for both basmati and non-basmati rice. It should be made sure that this is an active body that identifies issues at different stages and among different individuals of value chain, and has the power to resolve them. The body should also act as an outlet for public-private dialogue, where public sector can cater to the concerns and queries of rice sector.

40 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Citrus Pakistan exports US$ 415 million worth of fruits to the world. The main exports within fruits are citrus (fresh or dried), dates and guavas, mangoes and mangosteens. Export of citrus fruit, consisting of mandarins, grapefruit, lemons and oranges, to the world amounted to US$ 0.18 billion in Citrus fruit constituted 45% of Pakistan s total fruit exports to the world. Table 4 Pakistan's top fruit exports, 2015 Commodity Code Commodity Trade Value of Exports in 2015 (US$) 0805 Citrus fruit, fresh or dried 184,792, Dates 83,214, Guavas, mangoes and mangosteens 40,900, Trade potential Table 3 presents the structure of Pakistan s fruit export and China s fruit import portfolio, to help assess the product categories, which present an opportunity for trade between Pakistan and China. It can be seen that all of the categories in Pakistan s export portfolio are a part of China s import mix as well. Therefore, there is significant overlap in the fruit demanded by China and sold by Pakistan. China s imports in all these commodities outweigh Pakistan s exports. Therefore, complementarities in Pakistan s exports and China s imports provide a favorable position to Pakistan try to expand its exports to China, in order to increase its share in high demand Chinese markets. Table 5 Fruit trade complementarities with China, 2015 Commodity Code Commodity Pakistan's Exports ($) China's Imports ($) '0805 Citrus fruit, fresh or dried 184,793, ,894,000 '0804 Dates, figs, pineapples, avocados, guavas, mangoes and mangosteens, fresh or dried '0803 Bananas, incl. plantains, fresh or dried '0810 Fresh strawberries, raspberries, blackberries, back, white or red currants, gooseberries and... '0802 Other nuts, fresh or dried, whether or not shelled or 124,676, ,425,000 20,647, ,943,000 12,133,000 2,001,361,000 2,325, ,478,000

41 40 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT peeled (excluding coconuts, Brazil nuts... '0806 Grapes, fresh or dried 822, ,007,000 '0809 Apricots, cherries, peaches incl. nectarines, plums and sloes, fresh '0801 Coconuts, Brazil nuts and cashew nuts, fresh or dried, whether or not shelled or peeled 314, ,189, , ,709,000 '0808 Apples, pears and quinces, fresh 163, ,478,000 Source: UN Comtrade For this report, citrus is chosen for its special relevance to Punjab. Pakistan s citrus (HS 0805) exports to the world have increased progressively over the years from 2003 to Pakistan s exported citrus worth US$ 23 million in 2003, which increased to $185 million in The exports of citrus to the world have grown at an average annual rate of 5% in the years 2012 to Exports to China have been fluctuating over this time period, with no exports in most of the years, with an exception of 2006, 2008, and The highest exports were recorded in 2012, in which US$ 120,000 worth of citrus was exported to China. Exports have to China have taken place in 2015, after a gap of 2 years, which are $12,200 in trade value. Pakistan s citrus exports to China have fallen at a rate of 13% from 2012 to Figure 17 Pakistan's citrus exports, Pakistan's exports to the world (million US$) Pakistan's exports to China (US$ thosands) Pakistan s top 10 export partners for citrus in 2015 are shown below. Pakistan s export markets for citrus are well diversified. Afghanistan is the most salient

42 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 41 export destination, importing US$ 73 million worth of citrus which constitutes 40% of total Pakistan s citrus exports. The second largest export market is Russian Federation, accounting for 30% of Pakistan s exports, followed by UAE with a share of 11% in citrus exports. As it can be seen, China is not one of the export markets for Pakistan s citrus. Pakistan exports a nominal 0.01% of citrus to China, with a value of US$ 12,202. Figure 18 Pakistan's top export partners for citrus, 2015 Value (US$ million) Source: UN Comtrade 2017 China s top import partners, on the other hand, are South Africa, Australia and USA. China s total citrus imports were worth $267 million in Imports from South Africa were worth US$ 0.11 billion, with a share of 40% in China s citrus imports. The second highest importer for citrus in China was Australia, accounting for 21% of Chinese imports. Pakistan is not one of the top import partners for citrus in 2015, despite the geographical proximity. Figure 19 China's import partners for citrus, Value (US$ millions) Source: UN Comtrade

43 42 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT The table below shows Pakistan s citrus exports to the world in Pakistan s exports within citrus are concentrated in kinnow, which forms 92% of citrus exports to the world. This is followed by other citrus varieties, such as tangerines, clementines, wilkings, etc with a share of 7%. Other citrus hybrids and oranges form a small share of Pakistan s citrus exports. Table 6: Pakistan's citrus exports to the world in 2015 Product code Product description Pakistan's exports to world in 2015 (US$) Percentage of total HS0805 exports (PK to World) Kinnow, fresh 170,644, Other citrus fruits fresh/dried. 12,861, Other similar citrus hybrids 1,076, Citrus fruit, fresh or dried: 212, Oranges Source: ITC trade maps To compare Pakistan s exports with China s imports, the table below shows the citrus varieties being imported by China in HS0805 code. It can be seen that the highest percentage of imports accrues to oranges and grapefruits, 61.9% and 13.7% respectively, followed by lemons with 13% and mandarins with 11% of the total import share. Kinnow only forms 0.41% of total Chinese imports, with trade value amounting to $1,105,000. Table 7 China's imports of HS0805 in 2015 Product code Product description China's imports from World in 2015 (US$) Percentage of China s imports from the world in HS0805 category Oranges, fresh or dried 165,309, Grapefruit, including pomelos, fresh or dried 36,667, Lemons and limes, fresh or dried 33,995, Mandarins, clementines, wilkings& similar 29,648, hybrids, fresh or dried, nes Kinnow, fresh or dried 1,105, Latifolia citrus, fresh or dried 163, Citrus fruit, fresh or dried, nes 7, Source: ITC trade maps As evident, there is a discrepancy in the citrus varieties exported by Pakistan and those imported by China. Moreover, kinnow, which is the common product in both, constitutes only a small part of China s total kinnow imports. Despite these problems, there is an opportunity for Pakistan in terms of targeting the entire share of China s kinnow imports and for marketing the Pakistani kinnow to expand Chinese demand. Given the preferential treatment in terms of tariff waiver, Pakistan should make efforts to increase its share of kinnow exports to China, which at the time make up only 1% of total China s kinnow imports.

44 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT 43 Table 8 shows the indicative trade potential for CARs and China. Pakistan s current exports to CARs are worth US$ million. The imports from the world for CARs are worth US$ million. Pakistan accounts for 17% of total citrus imports of CARs. Trade potential for Pakistan-CAR exports in citrus shows that there is an opportunity for Pakistan to increase its exports to CARs by US$ 39 million. Less than half of this potential is currently tapped by Pakistan. Pakistan s share in China s citrus imports is insignificant in Trade potential for Pak-China trade shows that there is an opportunity for Pakistan to increase its exports to China by US$ 31 million, which at present is unexploited by Pakistan. Table 8 Pakistan's indicative trade potential for citrus, 2015 US Million $ CARs China Pakistan's exports Imports from the world Indicative trade potential Source: ITC Trade maps Figure 20 provides an insight on the prospects for market diversification for citrus, by plotting the growth of partner country s imports against share of Pakistan s exports to the partner country. Pakistan has a significant market share in the Russian Federation and UAE. However, while the UAE is a growing market, it can be seen that the import market of Russian Federation is shrinking from 2011 to Pakistan should look for alternative markets. Some of the growing markets, such as Qatar, Singapore and Oman have less than 3% share in Pakistan s exports. These markets present attractive opportunities for Pakistan to diversify its export of citrus. China is not shown in this chart as it is not a significant trade partner in citrus.

45 44 AGRICULTURE SECTOR OPPORTUNITIES IN CPEC S CONTEXT Figure 20 Prospects for market diversification for Pakistan, HS0805 Citrus, fresh or dried Source: ITC Trade maps